FDIC Law, Regulations, Related Acts

4000 - Advisory Opinions

Disclosure Requirements Upon Renegotiation of
Fixed-Rate Mortgages

FDIC-87-31

November 5, 1987

Patti C. Fox, Attorney

We are in receipt of your letter dated September 28, 1987 to the
Office of the Comptroller of the Currency ("OCC") regarding
certain fixed-rate mortgages offered by ***. The bank currently offers
fixed-rate 15 year mortgages with a balloon payment at the end of five
years, and permits the interest rate to be renegotiated when the
balloon payment
comes due. The bank is seeking approval
to add another balloon payment at the end of the second five year
period.

Adjustable rate mortgages include "fixed-rate mortgage loan
agreements that implicitly permit rate adjustment by having the note
mature on demand or at the end of an interval shorter than the term of
the amortization schedule unless the bank has clearly made
no promise to refinance the loan (when demand is made or at maturity)
and has made the disclosure specified in § 29.7(d) of this part.'' 12
C.F.R. § 29.1 (emphasis added). The mortgage appears to fall within
the first portion of the definition. Then, if your client promised to
refinance, when initially making the mortgage, it would have to comply
with all the disclosure requirements under Part 29. If the bank stated
only that it might refinance the mortgage, compliance with section
29.7(d) is sufficient. Refinancing has been interpreted by the OCC as a
loan which in some manner will supersede or relate to the general
mortgage loan. "Applicability of ARM Regulations to Home Equity Loan
Programs," OCC Interpretative Ltr. No. 391 [Current Matters] Fed.
Banking L. Rep. (CCH) ¶ 85,615 (June 11, 1987).

It is unclear from your letter whether the bank initially made a
firm promise to renegotiate the terms of the mortgage. As long as
proper and timely disclosures are made under section 29.7 or 29.7(d),
whichever is applicable, then the bank may seek an additional balloon
payment during the refinanced term of the
mortgage.